Top 10 Tax-Saving Tips For Expats Moving To Portugal

Last Updated on June 19, 2023 by Laila Oliveira

The sun-kissed beaches, vibrant culture, and delicious cuisine await you. But amidst the exciting offerings, you must know your money matters thoroughly. If you’re due to move to Portugal, it’s essential to know some crucial tax-saving tips for expats.

Will these tax benefits help you make the most of your financial situation and ensure a smooth transition? That’s our goal! So, whether you’re dreaming of spending your retirement here or expanding your business, we’ve compiled the top 10 tax-saving tips everyone should know before their move. Happy reading!

How does the tax system work in Portugal?

Before you learn about tax-saving tips for expats, you should familiarize yourself with certain important tax-related aspects to get an overview. 

The tax system in Portugal is an essential aspect to understand for expats settling in the country. Portugal operates on a progressive tax system, meaning tax rates increase as income levels rise.

For your ease, we’ve listed a brief breakdown of how the tax system works in Portugal:

• Personal Income Tax (IRS): Levied on your income, including employment income, self-employment income, and investment income. The tax rates range from 14.5% to 48%, depending on the income bracket. 
• Corporate Income Tax (IRC) applies to businesses operating in Portugal. The standard rate is 21%, but certain regions and activities may benefit from reduced rates or exemptions.
• Value Added Tax (VAT): Portugal applies VAT like other European countries. The standard rate is 23%, with 6% and 13% reduced rates for specific goods and services.
• Property Tax (IMI): An annual property ownership tax. Its rates vary depending on the property’s location, type, and value.
• Capital Gains Tax: Capital gains derived from the sale of assets, such as property or investments, are subject to tax.
• Inheritance and Gift Tax: Its rates vary depending on the relationship between the parties involved and the value of the assets transferred.

Nonetheless, you should know that tax regulations may change over time, so consulting a tax advisor or professional is recommended.

• Read Also: Portugal Tax System: Easy Breakdown For Expats.

Who has to pay taxes in Portugal?

With the different taxes in Portugal discussed, let’s talk about who these taxes apply to. 

Portuguese taxes are liable to residents and non-residents who generate income or own assets within the country. 

Portuguese residents are subject to taxation on their worldwide income, including employment, self-employment, rental, and investment. They are also liable for taxes on their assets, such as property and capital gains.

But non-residents are taxed on their Portuguese-sourced income. This includes income from employment in Portugal, rental income from Portuguese properties, and capital gains from selling Portuguese assets. Non-residents are generally not subject to tax on their foreign-sourced income.

There is also a third category that expats can fall under, which is called Non-Habitual Residents. 

Non-Habitual Residents qualify for the special tax regime, which we will discuss in detail later. They’re eligible for up to 10 years of certain tax exemptions and reductions on specific types of income, including pensions, employment income from certain professions, and self-employment income. Keep reading!

Portuguese tax residents’ obligations and deadlines

As an expat, you have certain obligations and deadlines to adhere to. Here’s what you need to know:

• As a tax resident, you must file an annual tax return to disclose your worldwide income and assets.
• The tax return deadline is typically by the 30^th of June, but there may be specific dates announced each year. Remember to stay informed and meet the filing deadline to avoid penalties.
• You are responsible for paying any taxes owed based on your income and assets within the specified deadlines.
• Expats should explore available deductions and credits to minimize their tax liability.

Top 10 tax-saving tips

Now that you know the basics of taxes in Portugal, let’s move on to the awaited tax-saving tips for expats. The 10 tips we’ll share will guarantee a more straightforward understanding than what you knew. 

1. The Non-Habitual Residence (NHR)

One of the most fantastic tax-saving tips for expats moving to Portugal is to explore the Non-Habitual Residence (NHR) regime. This unique program offers significant tax benefits for the first ten years of residency.

By becoming an NHR, you can enjoy a flat tax rate of 20% on certain types of income, such as pensions, dividends, and royalties. This can be a considerable advantage, especially for retirees or individuals with high-earning potential.

• To understand this regime in detail, check out our Complete Analysis of the Non-Habitual Resident Regime.

2. Different countries, different tax rules

Regarding tax-saving tips for expats in Portugal, it’s important to remember that different countries have different tax rules. This means things might not be the same as you’re used to, for better or for worse. 

Simply put, your tax obligations and potential savings vary based on your home country’s tax laws and treaties with Portugal. This is why understanding your specific situation’s tax implications is crucial. 

It’s also advisable to seek professional guidance from a tax expert specializing in international taxation. They can help you navigate the complexities and identify opportunities for tax optimization. Viv Europe ensures you take full advantage of applicable tax treaties or provisions specific to your home country.

3. Keep in mind the currency rates

Do keep in mind the currency rates, especially if you come from a country with a currency other than the Euro. Fluctuations in exchange rates can impact your tax liabilities and potential savings. 

So, if your income is in a different currency, you should convert it to Euros for tax purposes. Remember the exchange rates when reporting your income to ensure accurate calculations.

Also, if you pay taxes in your home country on income earned there, you may be eligible for a foreign tax credit in Portugal. And if you have financial transactions involving currency conversions, like property sales or investments, consider the exchange rates to optimize your tax position.

4. Take advantage of personal deductions

Remember to take advantage of personal deductions. You can claim these expenses as deductions to reduce your taxable income.

For example, education expenses, healthcare costs, charitable donations, and mortgage interest payments.

Keeping track of these expenses and ensuring you have the necessary documentation can lower your overall tax liability. Still, you must familiarize yourself with the specific requirements and limitations for personal deductions in Portugal.

5. The taxes on property

Among the top 10 tax-saving tips for expats in Portugal, understanding the taxes on property is a crucial one. Whether buying or selling property, you should know the applicable taxes to ensure you’re managing your expenses well.

There are four prominent taxes on property: 

• Property transfer tax (IMT) is levied on property purchases. Its rate varies based on the property type, location, and value. Exploring IMT rates and exemptions can help you plan your property acquisition and save on taxes.
• Stamp duty is payable when you execute a property deed; its rate is usually a percentage of the property value. Investigating any stamp duty exemptions or reductions available for specific transactions, such as permanent residence or rehabilitation projects, is worth investigating.
• Capital gains tax may apply to the profit made from a property you sold in Portugal. The tax rate depends on factors like the holding period and property type.
• Lastly, the wealth tax, commonly known as the AIMI tax, targets high-value properties and is calculated based on the property’s taxable value. Understanding AIMI tax rates and exemptions can help you to manage your tax liability effectively.

If you familiarize yourself with these property-related taxes, you can navigate property transactions in Portugal and optimize your tax savings.

6. The Portuguese succession law and taxes

Planning for your estate and inheritance can help you optimize your taxes and ensure a smooth transfer of assets. Portugal has specific rules regarding inheritance, like forced heirship rules that dictate how assets are distributed among heirs. Knowing these rules lets you make informed decisions about estate planning and asset distribution.

Also, an inheritance tax is imposed on the beneficiaries of an estate in Portugal. The tax rates vary depending on the deceased and their relationship. But, certain exemptions and allowances can help reduce your tax liability.

For example, by engaging in estate planning, such as creating a will or setting up trusts, you can have more control over the distribution of your assets. This can help minimize taxes for your heirs.

7. Consider the options for your pension

How you handle your pension income is one of the efficient tax-saving tips for expats. It can have a significant impact on your tax liability. For example, if you qualify for the NHR, you can benefit from a flat tax rate of 20% on certain types of pension income. This can be advantageous compared to the tax rates in your home country. 

You should know that Portugal has double taxation agreements with many countries. If you understand the provisions in these agreements, you can find a tax-efficient way to receive your pension while avoiding double taxation.

Also, consider whether receiving your pension as a lump sum or as regular payments is more tax-efficient, as tax implications vary based on the chosen method.

Lastly, if you have pension funds in your home country, try transferring them to a Portuguese pension scheme to avail tax advantages and simplify your financial affairs.

8. Timing your move

When planning your relocation, consider the timing of selling assets in your origin country. By strategically timing the sale of assets in your home country, you can minimize your tax burden and maximize your tax savings. Here’s what you need to remember:

• Selling assets, like property or investments, may trigger capital gains tax in your home country. You can take advantage of more favorable tax rates or exemptions by selling these assets before becoming a tax resident in Portugal.
• Some countries offer tax-free thresholds for capital gains or other types of income. If you sell assets and realize gains up to these thresholds before your move to Portugal, you can avoid or reduce your tax liability.
• It’s essential to consult a financial advisor specializing in international taxation and understand the tax regulations in your home country and Portugal. They can provide personalized advice based on your situation and help you better navigate the implications of timing your move.

9. Reduced corporate tax rates

One tax-saving tip for expats in Portugal is to take advantage of the reduced corporate tax rates. The country offers competitive corporate tax rates, making it an attractive destination for entrepreneurs and business owners.

The corporate tax rate is 21% for most companies and can be further reduced to 17% for small and medium-sized enterprises (SMEs). 

So if you structure your business operations in Portugal, you can benefit from these reduced tax rates by lowering your overall tax liability. This will also help increase your business profits.

Of course, consulting with a tax advisor or accountant specializing in international taxation is always a good idea to help you navigate the requirements and optimize your tax savings.

10. Get professional advice

The 9 tips mentioned will surely help you optimize your taxes, but one of the most valuable tips is to get professional advice. Tax laws can be complex and vary depending on your specific circumstances. 

To understand things perfectly, you should consult with tax advisors or accountants specialized in international taxation. This would give you a thorough understanding of the tax regulations and opportunities available.

Professionals at Viv Europe can also provide personalized guidance tailored to your situation. For example, they can help you navigate the tax landscape, identify potential savings, and ensure compliance with all relevant tax requirements. Investing in expert advice can ultimately maximize your tax savings as an expat in Portugal!

Do you need tax advice in Portugal?

There’s absolutely no shame in admitting that you need some help with something so complex. And when there’s a new country in the picture, all the more reason to look for legitimate advice! 

Feel free to book a consultation with some of the best tax advisors in Portugal! Viv Europe has experts that have been simplifying expats’ lives for years. You can rest assured that you will end the consultation feeling much more relieved.
If you’re looking to hear about relocation experiences from other expats, join our Facebook Group – All About Portugal For Expats. Ask questions, read stories, and make new friends!